As CFOs Scale Back on Agency Reliance, Staffing Firms Are Facing Bleak Future

Hospitals and health systems aren't the only entities facing financial pressures from rising labor costs.

The recent announcement of American Physician Partners (APP) filing for bankruptcy has significant implications for hospital CFOs who are actively working to reduce their reliance on contract labor.

The APP's decision to wind down its business affairs reflects the challenges that healthcare staffing companies can face in a dynamic market. In fact, the APP cited financial challenges that are similar—if not the same—to what healthcare organizations have been facing for years: financial pressures from the COVID-19 pandemic, rising labor costs, and No Surprises Act burdens.

APP isn’t alone though, as these pressures are almost identical as what Envision Healthcare cited earlier this year.

At the time, Envision Healthcare said various challenges including declining patient volumes, reduced reimbursement, the No Surprises Act, and rising inflation played into its bankruptcy filing. Envision has since undergone a restructure.

So what does this mean for healthcare CFOs?

At a time when CFOs are trying to scale back their use of staffing firms and focus on bringing staff in-house, these bankruptcy filings underscore the importance of careful vendor selection and risk management.

[See: Stop Throwing Money at The Problem: 7 Ways Leaders Can Recruit and Retain On A Budget]

Aside from being a large expense, relying heavily on staffing firms can expose hospitals to financial vulnerabilities in the event of unforeseen circumstances, such as bankruptcy. Hospital CFOs may need to reassess their vendor relationships, diversify their staffing sources, and consider new strategies for recruiting and retaining home grown staff.

In fact, this is exactly what Scott Wester, president and CEO of Memorial Healthcare System, a South Florida-based nonprofit system, prioritized for his organization.

“COVID changed the landscape of how we dealt with the workforce, predominantly the reliance on agency nurse travelers, outside contractors, and not having enough personnel to meet the demand that was out there, mostly on the clinical side,” Wester said.

“We spent almost $280 million a year utilizing outside contract or incentive pay and heavy reliance on nurse travelers. We recognized we needed to get people back to wearing our Memorial badge. Over the course of 12 months, we've dropped about 80% of use of outside contract labor. We're now about a $200 million savings just on that perspective,” Wester said.

So how did Memorial pull it off? The organization did it by bolstering its talent acquisition team, making sure to play more offense than defense, and by reaching out to the work community to try to figure out what was limiting people from joining the organization.

[See: The Exec: How Memorial Healthcare System's CEO Slashed Workforce Turnover]

As for future trends, CEOs and CFOs are likely to continue exploring alternative staffing models, not only for financial reasons, but for risk-management as well. As we know, the COVID-19 pandemic accelerated the adoption of telehealth, and this trend is expected to persist as hospitals seek innovative ways to optimize their workforce and reduce costs.

Additionally, CFOs may increasingly invest in workforce management tools and data analytics to make more informed decisions about staffing needs, ultimately enhancing operational efficiency and financial stability in the face of these industry challenges—which probably won’t be going anywhere anytime soon.